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  HOME | Opinion (Click here for more)

VenEconomy: Venezuela Lives the Worst of the Worlds

From the Editors of VenEconomy

The shortage crisis generated by Venezuela’s communist regime over the past 14 years of Hugo Chávez’s government seems to be inducing Nicolás Maduro to make incipient approaches on some businessmen of the nation’s productive sector.

It was breaking news early last week the meeting Maduro held with foodmaker and brewery Empresas Polar CEO, Lorenzo Mendoza, after an agreement of joint cooperation within a climate of dialogue and mutual respect.

The Government also made several announcements, among which stand out:

  1. The creation of 11 technical roundtables for businessmen and officials from several ministries intended to address different problems, as well as for officials of Cadivi (the Government’s foreign exchange regulating body) and the Central Bank of Venezuela (BCV). The food shortage-related roundtables kicked off on Monday with the participation of more than 500 businessmen, where they addressed the problems and possible solutions to the shortage crisis, the allocation of foreign currency and the hurdles for imports and production.

  2. A 20% increase in retail prices of various products that had been regulated by the Government.

  3. The Government assured the businessmen that the delays with the allocation of foreign currency by Cadivi were going to be resolved. Even though many have welcomed this sudden change of attitude from the Government, policies and indispensable measures to promote a sustainable production were not announced.

The Government still does not get one of the essences of the problem straight: That prices have to be reasonable enough to cover the costs of producers, distributors, shippers and retailers, and there must be also a reasonable profit margin for the entire productive and supply chain.

This is done by setting aside the formation of prices in the market. This is some truism! The Government has not taken into account the proper costs and margins for the setting of controlled prices. The authorized increase of 20% announced last week for various products was not enough as many companies started to show losses. Neither it has been capable to understand that scarcity is a direct result of its persistence of fixing lower prices with the excuse that this would be good for consumers.

The most serious part is that consumers are paying today “market prices” at parallel markets where beneficiaries from higher prices are “informal brokers,” not producers.

Meaning we have the worst of the worlds today with a country plagued by shortages and higher prices.

Besides the indispensable correction of other policies thwarting investments and destroying productivity, the primary way to solve the shortage crisis is embracing a policy that allows markets to fix prices, not the state. With the announcement of such a policy, companies would start investing, producing and creating jobs.

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

Click here to read this in Spanish


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